Payroll and Performance: a Surprising Connection

Two weeks ago, the blog team was discussing topics. “And we have . . . something on payroll. Can you take that one, Brian?” I was game, even though finding an interesting take on such a technical subject was going to be a challenge. But then I got an assist from my morning commute: NPR played a quote from Mad Men where Don Draper and Peggy Olsen are arguing over credit for a co-authored commercial.

Peggy: “But you got the CLIO!”

Don: “It’s your job! I give you money. You give me ideas.”

Peggy: “And you never say thank you!”

Don: “That’s what the money is for! You’re young, you’ll get your recognition. And honestly, it’s absolutely ridiculous to be two years into your career and counting your ideas! Everything to you is an opportunity! And you should be thanking me every morning when you wake up!”

– Mad Men, The Suitcase

I hope your payroll and compensation discussions are much less dramatic than this one. But the question still stands: What is the money for? If your employees are getting a regular salary and good benefits, shouldn’t that be enough? How do you create a compensation strategy that keeps your employees both satisfied and productive?

The answers to these questions don’t come with the right dollar amount. They come with an understanding of workplace satisfaction.

Workplace Satisfaction:
Building from the Foundation

The psychologist Frederick Herzberg developed a two-factor theory to explain workplace satisfaction. His research suggested that job dissatisfaction and job satisfaction are measured on two separate scales and that decreasing dissatisfaction doesn’t automatically increase satisfaction.

Cassie Whitlock presents this theory in a slightly less cerebral metaphor: think of your employees’ experience as a building. Every building needs a foundation, whether it’s a high rise or a single-family home. There’s nothing special or inspiring about the foundation; most of the time, architects will cover it up. But without a solid, steady foundation, the structure above runs the risk of failure, even if it’s built to code.

As Cassie notes, this is exactly what happened to the Lotus Riverside building in Shanghai, China. Workers dammed a nearby creek when excavating a parking garage, and heavy rains the next week caused flooding that washed away the foundation. The building was constructed well enough that it fell over in one piece, but that was small consolation to the tenants who had already purchased apartments.

Your payroll process creates crucial support in the foundation of your employees’ lives. Finding the right mix of salary and benefits is like getting the right blend of cement and sand. Except instead of ending up with permanent concrete pillars, you need your payroll system to continually support your employees, pay period after pay period, year after year.

It doesn’t matter if you have a state-of-the-art payroll system or if you’re manually processing payroll like Atlas with the world on your shoulders—no one is going to throw you a parade for getting payroll out on time. But if their foundation starts eroding, they won’t waste their time in letting you know.

Herzberg separated these foundational factors from what he called motivational factors: the satisfaction of a job well done, opportunities for advancement, and recognition (such as Peggy’s thank you). These motivational factors are a more powerful driver for your employees to excel in their work.

Your employees are a continual work in progress, constantly looking to expand their purpose and their capacity not just in the workplace, but also in their personal lives. They want assurance that when the time comes to add a new wing to their metaphorical building, your organization will expand the foundation to match. They want assurances that you will protect and preserve the quality of their lives.

Providing this assurance to your employees takes more than a “that’s what the money is for” attitude. It takes showing them the blueprints for their place in your organization’s future, for both their foundational footprint and their soaring skyline. It takes effective performance management.

Performance Management:
Putting Payroll in Perspective

There’s a reason Herzberg’s Theory is a theory and not a law: It’s nearly impossible to categorize the wide spectrum of human motivation into two neat categories. But it is possible to get a better idea of specific employee needs and motivations as you build relationships between managers, employees, and your organization through regular performance management.

The annual performance review as we know it today first appeared in the 1960’s, the era of Don Draper and Mad Men. At first, it was mostly about what the money was for: a formal meeting that made an attempt to connect yearly performance with compensation decisions. Employee engagement didn’t come into the conversation. Either your performance matched expectations, or your pay and progression were at risk. And those expectations came from imperfect managers with personal biases, limited memories, and incomplete data.

The workplace has come a long way since then. As Tori Fica discussed in a previous post, employee engagement improves when employees have clear objectives, work that aligns with their strengths, and a sense of purpose and autonomy. These are the pillars that build employee engagement (and all of its attendant results) on the foundation of fair compensation and solid benefits. When you make performance management a priority, you can reap the benefits that come from employee engagement right now instead of waiting for compensation questions to force the conversation.

As an added bonus, pairing regular performance management with consistent payroll practices and clear communication makes it clear what the money is for. When you explain possible career paths employees can take in your organization, they won’t have to wonder whether the bonuses you give out are recognition for a job well done or replacements for raises. They can build their performance on a foundation of information and support.

It takes both payroll and performance to build a great employee experience on a solid compensation base. Recognizing the relationship between these processes is the first step to optimizing them.